-- Posted Tuesday, 18 May 2010 | | Source: GoldSeek.com
By: Dr. Jeffrey Lewis
Perhaps more than stock and bond investors, precious metals investors must be privy to important macroeconomic indicators. Of the most important is money supply, followed immediately by lending and credit availability. These three factors all come together to establish how expensive or inexpensive paper currencies are and how silver and gold should be relatively priced to their paper counterparts.
Fear in Housing
The housing market that pushed the whole economy towards economic calamity is still in full swing today, and many believe the worst is yet to come. Thanks to exotic loans made to homeowners who couldn't afford the lifestyle they wished to have, mortgage resets at higher rates, and presumably higher monthly payments, will continue through late 2012.
To date, only about $400 billion of mortgages have been reset. However, that relatively small number has exerted a profound effect on the economy. Whole neighborhoods are on the auction block, and foreclosure sale signs outnumber for sale by owner signs in the worst affected areas.
More to Come
The first wave of the housing resets was large, but it is only half the size of the next wave. Estimates suggest that from March 2010 to September 2012, an additional $900 billion in home loans will be reset. Most of these resets are the result of loans issued with balloon payments. With balloon payments, a homeowner can buy a home with a discounted monthly payment for the first three to five years and generally pays only the interest. After the three to five year period has elapsed, the homeowner's rate then resets – and so does the monthly payment. None – and we repeat, none – of these homeowners will have a lower payment, and all of them will be forced to pay even more on a home they already can't afford.
The Solution to the Housing Mess
The solution to the housing disaster waiting right around the corner will be the same treatment that started the bubble in the first place: low rates. The Federal Reserve knows full well that it can't raise rates before these mortgages reset; otherwise, $900 billion in mortgages will suddenly have a higher rate and an even higher monthly payment. In addition, higher rates will prompt an immediate fall in the price of housing, as potential buyers will only to be able to afford lower prices, since most homeowners tend to shop for monthly payments more than they do for homes. Thus, the Federal Reserve will have to keep rates artificially low, creating another bubble in the process and devaluing each and every dollar you now have in your possession.
It's Time for Metals
The case for owning physical gold and silver has never been stronger. Truly, the last time the economy suffered a blow like it did in 2008 and then another subsequent blow just a few years after was during the Great Depression. Whether or not the real estate market pushes the whole economy into depression has yet to be seen, but it is absolutely certain that we will see rampant inflation.
Dr. Jeffrey Lewis
www.silver-coin-investor.com
-- Posted Tuesday, 18 May 2010 | Digg This Article
| Source: GoldSeek.com
